This report comprises a copy of the following report:

“Philips’ Second Quarter Results 2024”, dated July 29, 2024.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 29th day of July 2024.

KONINKLIJKE PHILIPS N.V.

/s/ M.J. van Ginneken
(Chief Legal Officer)

Subsequent events

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Philips performance

Performance per segment

Reconciliation of non-IFRS information

Certain non-IFRS financial measures are presented when discussing the Philips Group’s performance:

• Comparable sales growth
• Adjusted income from continuing operations attributable to shareholders
• Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted (Adjusted EPS)
• EBITA
• Adjusted EBITA
• Adjusted EBITDA
• Free cash flow
• Net debt : group equity ratio

For the definitions of the non-IFRS financial measures listed above, refer to chapter 13.5, Reconciliation of non-IFRS information, of the Annual Report 2023 and to the Forward-looking statements and other important information.

Comparable order intake is presented when discussing the Philips Group's performance. Effective Q1 2024, Philips has revised the order intake policy for the software business. Refer to Forward-looking statements and other important information.

Philips semi-annual report 2024

Management report Philips performance

Performance per segment

Diagnosis & Treatment

Connected Care

Personal Health

Other

Condensed consolidated statements of income

Amounts may not add up due to rounding.

Condensed statements of comprehensive income

Amounts may not add up due to rounding.

Condensed consolidated balance sheets

Amounts may not add up due to rounding.

Condensed consolidated statements of cash flows

Amounts may not add up due to rounding.

Condensed consolidated statements of changes in equity

Amounts may not add up due to rounding.

Notes to the unaudited semi-annual condensed consolidated financial statements

Basis of preparation

These condensed consolidated financial statements for the six-month period ended June 30, 2024, have been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed by the EU.

The condensed consolidated financial statements do not include all the notes of the type normally included in an annual financial report. Accordingly, these statements are to be read in conjunction with the Annual Report for the year ended December 31, 2023.

The condensed financial statements are presented in euros, which is the presentation currency. Due to rounding, amounts may not add up precisely to the totals provided. Certain comparative-period amounts have been reclassified to conform to the current-period presentation.

Significant accounting policies

The significant accounting policies applied in these condensed consolidated financial statements are consistent with those applied in the Annual Report 2023, except for the adoption of amendments to standards which are also expected to be reflected in the company's consolidated financial statements for the year ending December 31, 2024. The amended standards did not have a material impact on the company's condensed consolidated financial statements. The company has not early-adopted any standard, interpretation or amendment that has been issued but is not yet effective and endorsed.

Estimates

The preparation of the condensed consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting principles and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates under different assumptions or conditions. In preparing these condensed financial statements, unless otherwise disclosed, the significant estimates and judgments made by management in applying the company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2023. 

Risk management

The Annual Report 2023 describes certain risk categories and risks (including risk appetite) which could have a material adverse effect on Philips’ financial position and results. Those descriptions remain valid and should be read in conjunction with this semi-annual report.

Looking ahead to the second half of 2024, Philips continues to expect global market conditions to remain highly uncertain and volatile due to geopolitical and macroeconomic factors, whether or not they are related to or caused by the Russia-Ukraine war and/or the current situation in Israel and the larger Middle East region. Philips observes a trend of geopolitical tensions and de-globalization that intensifies protectionism. Examples of protectionism measures are trade policies, tariffs, sanctions, local value creation and production requirements to obtain market access, custom duties, taxation, technology and data restrictions, cyberattacks, import or export controls, talent mobility restrictions, nationalization of assets, and restrictions on repatriation of returns from foreign investments. In addition, there is general uncertainty on the development of local regulations and compliance thereto. Philips observes this trend in the major markets in which it operates and has a particular concern on the development of the US-China relationship and China’s drive to expand its global political footprint and become self-sufficient in critical technologies, including health-related ones. Examples of general factors are an overall modest economic growth outlook and uncertainty around outlook on inflation, interest rates, government spending and consumer confidence and spending, and the emergence of economic impacts related to the climate crisis. Examples of healthcare-specific potential factors include rising uncertainty over the future direction of public healthcare policy and the risk of declining public investment in healthcare ecosystems.

Philips operates in a highly regulated product safety and quality environment and its products and services, including parts or materials from suppliers, are subject to regulation by various government and regulatory agencies (e.g., FDA (US), EMA (Europe), NMPA (China), MHRA (UK), ASNM (France), BfArM (Germany), IGZ (Netherlands)). The relevant rules and regulations continue to evolve, which may impose significant additional pre-market and post-market requirements. Philips is undertaking considerable efforts to improve quality and management systems in all of its operations, and to keep strengthening the quality and continuous improvement culture we have built up. The improvement actions in these areas will continue to affect the company’s results.

Furthermore, the scope of Environmental, Social and Governance (ESG) disclosure requirements is significantly increasing in various jurisdictions, such as the EU Corporate Sustainability Reporting Directive (CSRD) that will apply to Philips as per the financial year 2024. Failure to (timely) meet these requirements could also trigger the additional risk of exposure to inquiries from supervisory bodies and adversely affect Philips’ reputation and brand or could adversely impact Philips’ financial condition or operating results.

For more information on uncertain future events, factors and circumstances see also Provisions and Contingencies.

Additional risks not known to Philips, or currently believed not to be material, could later turn out to have a material impact on Philips’ business, objectives, revenues, income, assets, liquidity, or capital resources.

Seasonality

Under normal economic conditions, the Philips Group’s sales are impacted by seasonal fluctuations, typically resulting in higher revenues and earnings in the second half-year. For the Diagnosis & Treatment and Connected Care segments, sales are generally higher in the second half-year, largely due to the timing of new product availability and customers attempting to spend their annual budgeted allowances before the end of the year. For the Personal Health segment, sales are generally higher in the second half-year due to holiday sales and events. The segment Other is generally not materially affected by seasonality; however, the timing of intellectual property transactions may cause variation over the year.

Segment information

Philips' operating segments are Diagnosis & Treatment, Connected Care and Personal Health, each being responsible for the management of its business worldwide. 

Sales composition and disaggregation

More segment information can be found in the Information by segment and main country in the Annual Report 2023.

Investments in associates

Investments in associates decreased from EUR 381 million as of December 31, 2023, to EUR 289 million as of June 30, 2024. The decrease is mainly due to the share of negative results (EUR 11 million) and impairment of associates (EUR 85 million), recorded within Investments in associates, net of income taxes, in the condensed consolidated statements of income. 

Other business income and expenses 

In Q1 2024 Philips recorded a provision of EUR 982 million as part of other business expenses in connection with the settlement of the Respironics personal injury litigation and the medical monitoring class action in the US (refer to Provisions). 

In Q2 2024 Philips Respironics recorded insurance income of EUR 538 million in connection with the agreement with insurers to partially reimburse the Respironics recall-related product liability claims. This income was recognized in Q2 2024 as part of other business income. In Q2 2024, Philips received EUR 150 million, and the remainder of the insurance receivables of EUR 389 million is expected to be received in the second half of 2024.

In Q1 2023, Philips Respironics recorded a EUR 575 million provision as part of other business expenses in connection with the anticipated resolution of the economic loss-related class action in the US.

Income taxes

For the six months ended June 30, 2024, income tax expense increased by EUR 422 million year-on-year, from EUR 27 million to EUR 449 million. This increase is mainly due to higher income for the group and higher de-recognition of deferred tax assets in the US.

The income tax expense was not materially impacted by the Global Minimum Tax (Pillar Two) legislation.

Discontinued operations 

For the six months ended June 30, 2024, discontinued operations included a tax benefit of EUR 142 million relating to tax audit settlements of prior years.

Goodwill

Goodwill increased by EUR 277 million due to positive currency translation in the six months ended June 30, 2024. Goodwill is allocated to groups of cash-generating units (CGUs) and tested for impairment at the lowest level at which goodwill is monitored for internal management purposes. Goodwill is tested for impairment annually in the fourth quarter and whenever impairment indicators require. Following restructuring announced in Q2 2024, a goodwill impairment test was performed for S&RC, which did not result in an impairment.

Equity

As of June 30, 2024, the issued and fully-paid share capital consists of 939,939,384 common shares, each share having a par value of EUR 0.20, and the total number of treasury shares amounted to 5,822,320, which were purchased at an average price of EUR 36.65 per share.

On May 7, 2024, the General Meeting of Shareholders approved a dividend of EUR 0.85 per common share, in common shares, against the retained earnings of the company. Subsequently, Philips issued and distributed a total number of 30,860,582 new common shares in May 2024, representing a total value of EUR 768 million (including costs). Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares for the share dividend in respect of 2023.

The following table shows the movements in the outstanding number of shares:

In the first six months of 2024, the company delivered a total of 1,290,490 treasury shares to satisfy certain obligations under its share-based remuneration plans.

Philips acquired a total of 4,437,164 shares through the settlement of forward contracts, resulting in EUR 167 million additional treasury shares. These forward contracts were entered into in connection with the completed EUR 1.5 billion share repurchase program for capital reduction purposes that was announced on July 26, 2021. In June 2024, all of the shares acquired during the first half-year were cancelled. 

The increase in the currency translation reserve by EUR 384 million mainly relates to the movements of USD versus EUR in the six months ended June 30, 2024.

EUR 311 million was transferred from the reserve for equity investments at fair value through OCI to retained earnings following the final dissolution or sale of related investments in the first six months of 2024.

Debt

As of June 30, 2024, Philips had total debt of EUR 8,265 million. The majority of the debt consisted of EUR 6,629 million of public EUR and USD bonds with a weighted average interest rate of 3.1%, EUR 224 million of forward contracts for share repurchases, and EUR 1,113 million of lease liabilities. The debt position includes the new bond issuance of EUR 700 million in Q2 2024, which will be used for repayment of debt in 2024 and 2025.

Long-term debt was EUR 7,137 million, an increase of EUR 101 million, and short-term debt was EUR 1,129 million, an increase of EUR 475 million compared to December 31, 2023. The increase in total debt of EUR 576 million is mainly due to the new bond issuance in Q2 2024, partially offset by repayments of forward contracts for share repurchases.

Provisions

Long-term provisions decreased by EUR 74 million and short-term provisions increased by EUR 493 million, respectively, during the six months ended June 30, 2024. The increase in short-term provisions was mainly due to the addition to the legal provision in connection with the settlement of the Respironics personal injury litigation and the medical monitoring class action in the US of EUR 982 million, which was partially offset by utilizations of provisions, mainly EUR 415 million from the economic loss-related class action in the US and EUR 97 million from the Respironics field action, respectively.

Respironics field action provision

On June 14, 2021, Philips subsidiary Philips Respironics initiated a voluntary recall notification in the United States and field safety notice outside the US for certain sleep and respiratory care products related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices. The remediation is progressing globally.

Philips has recognized a provision based on Philips’ best estimate of remediation costs. As of June 30, 2024, the remaining provision amounted to EUR 226 million, reflecting utilizations during the year of EUR 104 million.

The completion of the field action continues to be subject to uncertainty, which requires management to make estimates and assumptions about the costs of remediation activities.

Further to the above, field-action running costs during the year of EUR 72 million (2023: EUR 106 million), such as testing, external advisory and regulatory response and additional right-of-return and warranty provisions, have been incurred.

Legal provisions

Philips is a defendant in a number of consumer class-action lawsuits from users of the affected devices and a number of individual personal injury and other compensation claims. In the US, an economic loss class action, a medical monitoring class action and personal injury claims have been filed. In the six months ended June 30, 2023, Philips Respironics recorded a EUR 575 million provision in connection with the economic loss class action in the US. In the first half of 2024 EUR 415 million was paid.

In 2024, Philips reached a settlement agreement to resolve the personal injury litigation and the medical monitoring class action in the US. Philips and Philips Respironics do not admit any fault or liability, or that any injuries were caused by Respironics’ devices. Under the settlement, Philips Respironics has agreed to pay a total of USD 1.1 billion. The related payments are expected in 2025 and will be funded from Philips’ cash flow generation.

For legal matters including claims refer to Contingencies.

Contingencies

Legal proceedings

The company and certain of its group companies and former group companies are involved as a party in legal proceedings, regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, intellectual property, commercial transactions, product liability, participations and environmental pollution. 

While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal proceedings, regulatory and governmental proceedings, Philips is of the opinion that the cases described below may have, or have had in the recent past, a significant impact on its consolidated financial position, results of operations and cash flows.

Significant developments regarding legal proceedings that have occurred since the publication of the Annual Report 2023 are described below. For more information on these matters including the company’s assessment of each matter, reference is made to the Annual Report 2023.

Public investigations

In February 2023, the company received a statement of objections from the French Competition Authority (FCA) initiating a formal investigation to verify whether the company and certain other manufacturers of small domestic appliances breached antitrust rules in France in the period 2009-2014 through the alleged exchange of commercially sensitive information. The company denies any allegations in this regard and is defending itself against possible enforcement actions. Philips presented its defense to the FCA during the oral hearings in the first half of 2024 and is now awaiting the final decision of the FCA. It is the company’s assessment that it is possible but not probable that this matter could lead to an outflow of economic resources. The company is not able to reliably estimate the financial impact, if any, and no provision has been recognized as of June 30, 2024.

Respironics recall  

On June 14, 2021, Philips’ subsidiary Philips RS North America LLC (Philips Respironics) issued a voluntary recall notification in the United States and field safety notice outside the United States for specific Philips Respironics CPAP, Bi-Level PAP, and mechanical ventilator devices (the “Respironics Recall”).

Consent decree and DoJ investigation

In the first half of 2024, Philips Respironics reached an agreement with the US Department of Justice (DoJ), acting on behalf of the US Food and Drug Administration (FDA), regarding the terms of a consent decree to resolve the identified issues in relation to the Respironics Recall. The consent decree was entered by the court in April 2024.

In April 2022, the DOJ issued a subpoena to Philips Respironics in relation to the events leading up to the Respironics Recall. Philips Respironics has continued to respond to the information requests in the subpoena. The company is not able to reliably estimate the financial impact, if any.

Product liability claims

Following the Respironics Recall, a number of civil complaints have been filed in several jurisdictions against Philips Respironics and certain of its affiliates (including the company) generally alleging economic loss, personal injury and/or the potential for personal injury allegedly caused by devices subject to the recall.

In 2023, Philips Respironics entered into a settlement agreement to resolve the US economic loss class action for which a EUR 575 million provision was recognized in the first quarter of 2023. On April 25, 2024, the settlement agreement received final approval from the US District Court for the Western District of Pennsylvania. The settlement agreement has now become final and non-appealable.

In the first half of 2024, Philips Respironics entered into settlement agreements to resolve the personal injury litigation and medical monitoring class action in the US. Under the settlement agreements, Philips Respironics has agreed to pay a total of USD 1,075 million to resolve the personal injury claims and USD 25 million to resolve the medical monitoring class action.

Under the personal injury settlement agreement, Philips Respironics has the right to terminate this settlement agreement if less than 95% of eligible claimants with qualifying injuries participate in the settlement. The deadline for personal injury claimants to register for the settlement is December 10, 2024. For any individuals who still wish to pursue litigation, they will be the subject of case management orders that set strict terms and deadlines, including for expert reports. Non-compliance by such individuals may result in dismissal of their claims. The personal injury settlement agreement is not subject to court approval.

The medical monitoring settlement received preliminary approval from the District Court for the Western District of Pennsylvania on June 27, 2024, with a final approval hearing scheduled for October 30, 2024. The effectiveness of the medical monitoring settlement is subject to court approval.

In connection with the settlements, Philips and Philips Respironics do not admit any fault or liability, or that any injuries were caused by Respironics’ devices. 

On July 4, 2024, a group of lawyers announced they filed a product liability lawsuit in Italy on behalf of users of Respironics devices in Europe, allegedly claiming personal injury related damages. Philips has not yet been served with the complaint and is therefore not yet able to assess the merits of the alleged claim.

In the first half of 2024, the company also reached an agreement with its product liability insurance carriers regarding their contribution to the Respironics recall-related product liability exposure. Q2 2024 includes EUR 538 million insurance income related to this agreement, of which EUR 150 million had been received as of June 30, 2024.

Securities claims

In August 2021, a securities class action was filed against the company in the US District Court for the Eastern District of New York alleging disclosure deficiencies in relation to the Respironics Recall. The court held a hearing on the company’s motion to dismiss in April 2024 and the court is now expected to decide on the motion to dismiss.

Following earlier requests for information from the US Securities and Exchange Commission (SEC), in March 2024, the company received a subpoena from the SEC relating to the Respironics Recall and compliance with relevant securities laws. The investigation is not an indication that the SEC or its staff have determined that any violations of law have occurred. The company is fully cooperating with the investigation.

Related-party transactions

On August 14, 2023, it was announced that Exor N.V. acquired a 15% minority stake in Philips shares and entered into a relationship agreement with the company. Pursuant to the relationship agreement with the company, Exor N.V. proposed one member to the Supervisory Board, which was confirmed at the 2024 Annual General Meeting of Shareholders on May 7, 2024. From this date, Exor is considered a related party for reporting purposes. Exor has agreed to maintain its shareholding of at least 15% up to 20% for 3 years from August 13, 2023. Exor increased its shareholding to 17.5% as of June 30, 2024.

Fair value of financial assets and liabilities

The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.

The following table shows the reconciliation from the beginning balance to the ending balance for Level 3 fair value measurements.

Forward-looking statements and other important information

Forward-looking statements

This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include statements made about strategy, estimates of sales growth, future Adjusted EBITA^*), future restructuring and acquisition related charges and other costs, future developments in Philips’ organic business and the completion of acquisitions and divestments. Forward-looking statements can be identified generally as those containing words such as “anticipates”, “assumes”, “believes”, “estimates”, “expects”, “should”, “will”, “will likely result”, “forecast”, “outlook”, “projects”, “may” or similar expressions. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.

These factors include but are not limited to: Philips’ ability to gain leadership in health informatics in response to developments in the health technology industry; Philips’ ability to keep pace with the changing health technology environment; macroeconomic and geopolitical changes; integration of acquisitions and their delivery on business plans and value creation expectations; securing and maintaining Philips’ intellectual property rights, and unauthorized use of third-party intellectual property rights; Philips’ ability to meet expectations with respect to ESG-related matters; failure of products and services to meet quality or security standards, adversely affecting patient safety and customer operations; breaches of cybersecurity; challenges in simplifying our organization and our ways of working; the resilience of our supply chain; attracting and retaining personnel; challenges in driving operational excellence and speed in bringing innovations to market; compliance with regulations and standards including quality, product safety and (cyber) security; compliance with business conduct rules and regulations including privacy and upcoming ESG disclosure and due diligence requirements; treasury and financing risks; tax risks; reliability of internal controls, financial reporting and management process; and global inflation. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see also the Risk management chapter included in the Annual Report 2023. Reference is also made to section Risk management in the Philips semi-annual report 2024.

Third-party market share data

Statements regarding market share contained in this document, including those regarding Philips’ competitive position, are based on outside sources such as specialized research institutes, as well as industry and dealer panels, in combination with management estimates. Where information is not yet available to Philips, market share statements may also be based on estimates and projections prepared by management and/or based on outside sources of information. Management’s estimates of rankings are based on order intake or sales, depending on the business.

Market Abuse Regulation

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

Use of non-IFRS information

In presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certain non-IFRS financial measures. These non-IFRS financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measure and should be used in conjunction with the most directly comparable IFRS measures. Non-IFRS financial measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. A reconciliation of these non-IFRS measures to the most directly comparable IFRS measures is contained in this document. Further information on non-IFRS measures can be found in the Annual Report 2023.

Presentation

All amounts are in millions of euros unless otherwise stated. Due to rounding, amounts may not add up precisely to totals provided. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2023. Prior-period amounts have been reclassified to conform to the current-period presentation; this includes immaterial organizational changes.

Effective Q1 2024, Philips has revised the order intake policy to reflect the full contract value for software contracts that start generating revenue within an 18-month horizon, instead of only the next 18-months-to-revenue horizon. This change has been implemented to better align with the specific business model of our software businesses, simplify the order intake process, and better align with peers. Prior-period comparable order intake percentages have been restated accordingly. This revision has not resulted in any material changes to the order intake percentages for the periods presented.

Per share calculations have been adjusted retrospectively for all periods presented to reflect the issuance of shares in the second quarter of 2024 in connection with the 2023 share dividend.

Philips statistics